what is rent-seeking? when is it likely to be widespread? how does it influence economic efficiency?

Abstract

The paper studies the influence of Tullock (West Econ J 5:224–232, 1967) and the rent-seeking literature more generally on the study of abuse. The theoretical corruption literature with its emphasis on principal-agent relationships inside government and rent creation by abuse politicians has largely, only not entirely, overlooked that contestable rents encourage unproductive use of existent resources in seeking these rents. As a consequence, the literature underestimates the value of corruption command and the cost of corruption itself.

Introduction

For the modernistic reader, it is quite an eye-opener to go back and read Gordon Tullock'due south paper "The welfare costs of tariffs, monopolies, and theft" published in 1967 in the Western Economic Journal (at present Economic Inquiry). The paper is very short and to the point, uses a few simple diagrams, and does not exhibit a unmarried equation or a statistical table of any kind. Yet, information technology contains i of the virtually powerful new insights emerging from twentieth century economic thought, laid out clearly towards the end of the paper. The insight, of course, is that the social cost of government policy (monopoly, transfers, regulation, etc.) is much greater than suggested by the calculation of Harberger triangles and deadweight toll. The source of the actress cost is the contesting of rents created past the policies by potential beneficiaries expending existent resource. This, along with Tullock's (1980) paper on "Efficient rent seeking" started a huge literature on rent seeking—the term coined by Krueger (1974) for the activities described by Tullock. ^{Footnote ane}

The purpose of this paper is to discuss the influence of the rent-seeking literature on the study of the economics of corruption. The terms "rent seeking" and "abuse" are often used interchangeably. Closer inspection of the academic literature, however, reveals that the two literatures have proceeded in parallel to a surprisingly large extent. I shall fence that this is unhelpful and that both the rent-seeking and the corruption literature tin do good from each other.

The rest of the paper is organized as follows. Section 2 develops a taxonomy that helps set the stage for the rest of the analysis. Section 3 provides a brief overview of the theoretical corruption literature. Section four evaluates the influence of the hire-seeking literature on the study of abuse. Section 5 inquiries into the influence of the corruption literature on the study of rent seeking. Section half dozen engages with the human relationship between empirical inquiry on corruption and rent seeking. Department vii provides some concluding remarks.

The core concepts, definitions and taxonomy

In this section, I briefly review the 2 main insights from Tullock (1967) and propose a full general taxonomy that can help clarify the link between abuse and rent seeking.

The core ideas of the rent-seeking literature

Information technology is useful, I think, to start by clarifying the main ideas and concepts, even if they are familiar to near readers. The hire-seeking literature embodies two core ideas, which can both exist establish in Tullock (1967). The insights are:

1. i.

   The missiles seek rut hypothesis: A contestable rent induces rent-seeking activities aimed at capturing the rent. These activities involve unproductive utilise of existent resource and crusade a social loss.

2. 2.

   The invertability hypothesis: Rent-seeking costs are, past and big, unobserved simply by applying contest theory and assumptions near the behaviour of hire seekers, the size of the social cost tin exist inferred from the value of the contestable hire.

Examples of contestable rents are abundant: assigning monopoly rights, protectionist trade policies, privileged budget allocations, income transfers, national resources rights, and so on. The distinguishing feature making a rent contestable is that ex dues—i.e., before information technology is assigned to whatsoever particular economic agent—it is up for grabs. This is what makes information technology rational for potential beneficiaries to expend resources in contesting rents.

Contestable rents differ from contestable profits, which trigger socially productive activities (Buchanan 1980). Contestable profits play an of import and efficiency enhancing role in the allocation of resource in a capitalist market place economy. Economical agents take an incentive to expand into markets with profits and to introduce to create profits; this improves resource allocation, expands output of the economy and increases aggregate welfare.

Many contestable rents are created and protected by government policy and government officials and politicians are gatekeepers who regulate who gains access to the rents. This is what Tullock had in heed. In this case, economical agents cannot competition the rent past shifting resources straight into production of the underlying good or service. Instead, they are motivated to invest time, effort and other real resources—to engage in rent-seeking activities—in attempts to secure either the initial assignment of the right to the rent or in ousting others from their position of privilege. These resources are employed unproductively merely have social value in alternative employment.

All this is largely unobserved and certainly not recorded by any statistical agency and reported to the public. This makes it hard to know how large these loses actually are. Fortunately, the second insight—the invertability hypothesis—tin assistance: the social loss can be inferred through contest-models from the size of the contestable rent. It is, in other words, possible to "invert" the procedure and use the size of the observable rents to infer the unobserved social cost of hire seeking. A very extensive literature on rent dissipation, including Tullock's (1980) paper on efficient hire seeking, has subsequently demonstrated that the possible relations between the observable hire to the underlying hire-seeking expense are complex and contingent on many assumptions or influences. ^{Footnote two}

Definitions and taxonomy

In order to examine the influence that the two core insights from the rent-seeking literature take had on the corruption literature, the starting betoken must be to settle on definitions of what the ii social phenomena are and to develop a workable taxonomy that can assistance united states organize the material.

The standard definition of "rent seeking" is the quest for privileged benefits from government [encounter, for example, Hillman (2013)]. While there is general understanding on this definition, it has proved much harder to converge on a widely accepted definition of corruption. ^{Footnote 3} An oft used definition of corruption amongst economists is "auction past authorities officials of government property for private gain" (Shleifer and Vishny 1993) or situations where "the ability of public office is used for personal gain in a mode that contravenes the rules of the game" (Jain 2001).

Taking these definitions at face up value, it is clearly possible to have rent seeking without abuse and vice versa. If, for example, a government official is charged with allocating mobile phone licenses and the rules specify that he must select the visitor that makes the "nearly convincing instance for efficient service delivery" and if he follows this rule to the best of his ability, then there is no abuse. Yet, at that place volition be a lot of rent seeking. The mobile phone companies volition expend vast resources on making their case for existence the best for the job. Conversely, information technology is besides possible to take corruption without hire seeking. Suppose, for instance, that i of the companies pays a bribe to obtain the license without any checks on its power to deliver the services efficiently (and no one else makes any effort to show their fitness for the task), and so we clearly have a state of affairs of corruption but without any real resources take been used unproductively in rent-seeking activities. This line of reasoning, however, gives the impression that corruption and rent seeking are entirely different social phenomena and that is misleading and unhelpful. The problem is that the definition of corruption used in the economics literature is too narrow.

It is more fruitful, as suggested past Lambsdorff (2002, p. 98), to employ a broader definition. Thus, let me define corruption as a special means by which private agents may seek to pursue their interest in competition for preferential treatment past government officials or politicians and where the "ways" are valued by the recipient. The primary case of a "special means" is a bribe—a monetary payment in render for preferential treatment. The employ of personal contacts (favouritism) co-ordinate to the principle "you help me and I will help yous" is another example.

This definition aslope the definition of rent seeking itself highlights an important consideration. Information technology matters a lot from a social bespeak of view, if the "means" of seeking preferential treatment involves the outputs or income from the production procedure or it involves the straight use of factors of production. In the showtime case, the available factors of production are employed to produce output and generate income to the cistron owners, i.e., the economy is on the production frontier (maybe on a second all-time frontier, but withal on the frontier). Some of the income thus generated may be used to seek rents and preferential handling. This is the situation envisaged by much of the abuse literature. In the second case, factors of production, for example, labour, which could take been employed in production of output are deployed in the procedure of seeking rents—people who could become entrepreneurs become lobbyists. Equally a consequence, the economy produces below its production frontier and output and income is lost. This is the situation envisaged by the rent-seeking literature which is concerned with the efficiency losses due to unproductive use of resource in the quest for rents.

Using the definitions, corruption and rent seeking can exist combined as instances of influence-seeking activities. Such activities can be distinguished forth two dimensions: whether the gatekeeper who assigns the hire benefits from the influence-seeking activities and whether the influence-seeking action involves a transfer of income (bribe) or unproductive apply of resources. This gives rise to the two-by-2 taxonomy in Tabular array 1a and the illustrative examples in Table 1b.

Table 1 Taxonomy of influence-seeking activities

Full size table

According to this taxonomy, pure corruption refers to the case where competition for preferential treatment is such that the gatekeeper benefits from the influence-seeking expenses/activities in the way of a free income transfer from the beneficiary to the gatekeeper. Pure rent seeking refers to the state of affairs in which competition for preferential treatment is such that the gatekeeper does not benefit from the influence-seeking expenses/activities, which represent unproductive utilize of factors of production. The case of impure corruption emerges if the income transfer is associated with a transaction cost such that the value of the income transfer to the gatekeeper is lower than the toll to those paying the transfer. Impure rent seeking emerges if the unproductive use of factors of production in seeking influence may, in fact, do good the gatekeeper.

There are, of course, a whole raft of intermediate cases and many other distinctions tin be made (corruption is restricted to a few competitors while rent seeking is open up to all; corruption is non legal, while rent seeking is, etc.), but the ii-dimensional taxonomy is, at the very least, helpful in clarifying the link between the rent-seeking and corruption literature. Most of the abuse literature is concerned with situations where the gatekeeper gains and the influence-seeking action represents an income transfer. Bribery is the classical case of this which is often viewed as a complimentary transfer (e.thou., Rose-Ackerman 1975; Lui 1985). In reality, even bribery is associated with transaction costs (e.g., Tirole 1992). This reduces the value of the bribe for the gatekeeper and in the limit, makes it worthless. The classical rent-seeking literature, including the examples given by Tullock (1967) and the analysis in Hillman and Samet (1987) and many other papers on hire dissipation is almost pure rent seeking: existent resource are being employed in seeking, say, a government-sponsored monopoly hire, which is assigned without whatsoever proceeds to the official who assigns it. Withal, it is possible to envisage cases in which the gatekeeper may gain. The literature on contest blueprint, for example, engages with the possibility that the rent-seeking expense is, in fact, valued by the regime official who assigns the underlying hire (Gradstein and Konrad 1999; Epstein and Nitzan 2015). This leads to what I call contestable bribery in Table 1b.

Overview of the corruption literature

The theoretical abuse literature has evolved along two main branches. ^{Footnote 4} They are

1. 1.

   The helping hand type of corruption: Corruption arises when a benevolent principal delegates decision making power to a not-benevolent agent. The level of corruption depends on the costs and benefits of designing optimal institutions. Abuse is optimal.

2. 2.

   The grabbing hand type of corruption: Corruption arises because non-benevolent government officials introduce inefficient policies in society to excerpt rents from the private sector. The level of abuse depends on the incentives embodied in existing (oft suboptimal) institutions and policies. Corruption is not optimal.

The first branch of literature has its origin in the law and economics and in the organisational economics literatures, with classical contributions by Becker and Stigler (1974), Rose-Ackerman (1975), and Tirole (1992, 1994) and, more recent contributions, by Laffont and Guessan (1999), Acemoglu and Verdier (2000), Dabla-Norris (2002), and Dhami and Al-Nowaihi (2007) amongst many others. A typical "helping hand" scenario, which we shall apply as a heuristic devise beneath, is environmental regulation. Un-internalised and socially harmful externalities provide a prima facie example for government intervention and a benevolent regime would want to impose a correction. In practice, the job of doing so is delegated to a hierarchy. The officials of the bureaucracy will amongst other things be tasked with checking that the polluting firms abide by the regulations. The problem, nonetheless, is that it is impossible for the authorities to monitor the officials perfectly. This leaves room for collusion between the firms and the officials. Whatsoever given official may agree to accept a bribe for not reporting violations of the regulations. Or the regulator may simply come to identify with the regulated firm. The benevolent authorities tries to avoid this by designing institutions (monitoring, wage structures, penalties) to maximise social welfare, but it is costly to blueprint such institutions. It may, therefore, exist optimal to take a rest of corruption and dominion violation. That is, abuse within this formulation is, in fact, optimal in a second best sense.

The second strand of literature starts from the Tullock dictum "people are people" and does not presume any degree of benignancy in the acquit of the government. Examples of contributions to this literature include Shleifer and Vishny (1993), Bliss and di Tella (1997), and Aidt and Dutta (2008). A typical "grabbing manus" scenario, which nosotros shall also explore below, is entry regulation. Suppose that there are no good welfare economics reasons for restricting entry into an industry. Yet, a corruptible government official or politician may nonetheless introduce a license system that restricts entry. The reason is that such regulation creates rents through artificial scarcity. As a consequence, potential producers in the manufacture is willing to pay a bribe to obtain a license. A leviathan-type pol would, then, issue the ransom maximising number of licences and collect the largest possible bribe income. In exercise, however, institutional constraints may impose some limits of this sort of behaviour. The level of corruption depends on given institutional structures, culture, and history and is, in general, sub-optimal. Moreover, the type of corruption is endogenous to the political authorities. Charap and Damage (2002) point out that this is a natural upshot of the predatory strategies that "rulers" operating under dissimilar constraints employ to extract rents from the economy. For case, in a dictatorship, a corrupt and low-paid bureaucracy, either of the competitive or monopolistic blazon, can at the aforementioned time aid the dictator to maintain power and to excerpt rents from the economy. In dissimilarity, in a functioning democracy, the preferred vehicle for rent extraction becomes involvement group contributions to political campaigns.

The influence of the rent-seeking literature on the study of corruption

We can use the ii examples developed higher up to evaluate the influence of the rent-seeking literature on the written report of the economics of abuse. In the "helping hand" scenario, a corruptible public official may share a rent with the business firm that he is meant to regulate past accepting a bribe in return for turning a blind eye to environmental violations. The rent itself is created past disproportionate data and imperfect monitoring. There is a social loss involved because of socially undesirable environmental damage. This is, all the same, optimal given the costs and benefits of designing incentives. It is important for this decision that the information rent is non contestable and the influence-seeking activity—offering a bribe—is a pure transfer. It is also important that the ransom does not by itself involve a social loss, although ane could imagine that transaction costs would reduce the value of the bribe received below the utility price of paying it. Yet, the point remains that the receiver, the government official, values the bribe. In this type of model, influence seeking is limited to what I termed pure (or at worst impure) corruption in Table 1a. Information technology is simply a transfer of resources from i gear up of agents to some other. There is no social loss involved over and in a higher place the fact that public policy is distorted.

In the grabbing hand scenario, rents have to be created past the public official before bribes tin exist collected. This is washed by introducing a license system which restricts entry to economic activity and creates artificial scarcity. This, past itself, involve a social loss. Nevertheless, the public official has a private incentive to do this considering he can extract some or all of the hire from the would-be producers who are willing to offer a bribe to be "assigned" the scarcity rent. Once again, the bribe is a pure transfer betwixt producers and public officials, and, given and take, transaction costs, information technology does non constitute a social loss in and past itself. Although the rent created past each licence is contestable, the structure of the contest is such that competition takes place through bribery. It does not involve any persuasion, advancement or whatsoever other activity which would involve "called-for" existent resources with positive shadow prices and which might non benefit the public official personally in the process of seeking the hire conferred by the production licence.

The cadre insight from Tullock's seminal paper that these approaches (and the corruption literature more by and large) have not taken upwardly is the notion of "rent contestability". Consider the case of monopoly rents created by entry restrictions. Tullock (1967) points out that, if the monopoly rent is contestable, it will concenter existent resources, which he causeless was equal to its value. This adds the "Tullock rectangle" to the standard deadweight cost of monopoly. If, in contrast, the monopoly right were secured by paying the public official in accuse a bribe, it would appear that the additional cost would vanish: the bribe is "just" a transfers from ane party to another. However, this misses the bespeak. Posner (1975) puts it similar this: "It might seem that where monopoly is obtained by bribery of authorities officials, the additional loss of monopoly [the rent-seeking toll] would exist eliminated since a bribe is a pure transfer. In fact, however, bribery merely shifts the monopoly profit to the officials receiving the bribe and draws real resources into the activity of becoming the official who is in the position to receive these bribes" (p. 82). ^{Footnote 5}

This is a very important point which has been largely ignored in the abuse literature, merely not entirely. Hillman and Katz (1987) take up the baton in their paper "Hierarchical structure and the social costs of bribes and transfers". ^{Footnote vi} Their starting signal is that agents who seek a rent may utilize bribery—transfers of income—to gain admission to the hire. While these bribes do not (necessarily) involve any social loss, the bribe income stream may be contestable. This happens when bribe income is a prize that tin be won through a contest for item positions in government, i.e., the positions to which the bribes accrue are themselves contestable. In the environmental regulation scenario, for example, being appointed to oversee regulated firms may be open to many potential officials who all know that obtaining the date will allow them to extract bribes from the firms that they oversee. If so, a pure hire-seeking contest will follow and the resources employed in winning that competition may well be time and effort—factors of production that could be used productively. Consequently, the rent created by the corruption opportunity offered past disproportionate information and imperfect monitoring, non only represents a case of pure corruption. It besides represents a case of pure hire seeking because the position in the government bureaucracy is a contestable hire. The situation becomes even worse when influence seeking takes place within a hierarchy in which lower-downward officials laissez passer some of the bribe income on to higher-upwards officials. In this case, each position becomes a contestable rent with an associated social cost of contestability (Hillman and Katz 1987). Another reason why the rent-seeking toll is likely to be large in this case is that the rents are private, i.e., the prize of obtaining a position in the hierarchy is a private revenue stream. Ursprung (1990) has shown that the distinction between private and public-appurtenances rents is very important for the overall social cost. The degree of rent dissipation is much larger with private than with public-appurtenances rents.

The point about contestability is also taken upwardly in a sequence of studies of misallocation of talent and corruption, although the connection to the rent-seeking literature is not always made explicit. The general thought in this literature is that talented people can be employed as individual sector entrepreneurs (or in some other productive job) or equally government bureaucrats. Positions in the public sector offer abuse possibilities and government officials can do good personally from the rents they control (created past, for example, collusion allowed by asymmetric information as in the instance to a higher place). Controlling these rents is a contestable prize and agents will seek employment in the government sector to gain access to them. If the nearly talented people seek these jobs, there will be misallocation of talent: individuals who should have become productive entrepreneurs become rent seekers (in the sense of pure rent seeking) instead. The social costs of rent seeking is, then, the economic consequences of this misallocation of talent, which could be lower growth or income, plus, of course, the policy distortion created past bribery in the first place.

Murphy et al. (1991) develop this logic in a model of allocation of talent in which the government serves no particular purpose. However, government jobs offer the possibility to create and extract rents to the personal benefit of the holder of the job (which is their definition of abuse). The analysis emphasizes that talent is frequently full general and talented individuals tin be successful in many different jobs, including in jobs that offer pure abuse possibilities and in entrepreneurial jobs. More than able people may exist able to extract more rents, and if this advantage is sufficiently large, the most talented volition seek jobs in the public sector because those jobs offering corruption opportunities. The social price is likewise piffling innovation and lower economic growth [encounter also Spud et al. (1993)].

The underlying premise of this analysis is that more than able people are expert at both hire seeking and productive activities. This appears plausible: many lobbyists are very clever, and could accept put their talent to productive utilize in the biotech or some other frontier manufacture rather than utilise their abilities in the lobbying industry. Notwithstanding, this is not the only reason why corruption opportunities in the public sector can pb to misallocation of talent. Acemoglu and Verdier (1998, 2001) point to another more subtle mechanism. In their analysis, the authorities hierarchy has a socially valuable purpose, namely to enforce contracts that support productive investment. This, however, creates corruption possibilities since individual bureaucrats may decide not to enforce a contract in render for a payment from the party that benefits. Anticipating this makes investment unprofitable ex ante and as well niggling or no investment will be undertaken. The benevolent government may try to solve this trouble past paying efficiency wages. This, however, generates a social toll considering it attracts individuals to the public sector with no comparative advantage in that sector. The rent-seeking cost is indirect in this model: information technology is not so much the fact that government jobs offer abuse possibilities that is the source of the problem. Rather, it is the benevolent government'south try to control corruption by paying higher up market wages that induces the misallocation of talent.

The influence of the abuse literature on the study of rent seeking

While the corruption literature, leaving the exceptions noted higher up aside, could learn from the rent-seeking literature, information technology is non a one-manner street. The rent-seeking literature can also learn from the corruption literature, or, at least, part of it.

Most importantly, the "grabbing hand" corruption literature emphasises hire creation: corrupt officials create rents which they extract for themselves via bribery. They practise so past introducing bogus scarcity via licenses, permissions, cumbersome procedures, etc. In dissimilarity, in the hire-seeking literature, the rents are oftentimes (but apparently not always) taken as given; they are there for "whatsoever reason". Information technology is plain that the incentive of a public official to create artificial scarcity depends critically on whether he or she tin can subsequently benefit from the rent thus created. Government officials have little incentive to create rents if they cannot benefit from them (Hillman 2015). Bribery allows officials the maximum flexibility in capturing the rent they have created. Every bit emphasized by Lambsdorff (2002), this makes corruption, understood every bit influence-seeking activities from which officials personally do good, particularly harmful to guild: corruption possibilities encourage rent creation. If, instead, rent creation triggers influence-seeking activities which practise not directly benefit the official and may fifty-fifty be costly to him or her because it involves costly engagement with lobbyists and special interests, then the incentive to create the rent in the first identify is decreased.

In brusque, corruption encourages hire creation because it allows the creator of the rent to do good personally. To quote Tullock (1996, p. 8) in his discussion of corruption in nineteenth century China, "the official actually write the laws with the intent of being bribed to permit people to avert conveying out the law." In contrast, if bribery for some reason becomes impossible or unattractive (e.m., because of improve command structures) and, equally a event, most rents will be contested in ways that do non benefit the official, then he or she might decide that it is time to repeal the regulation that generated the rent in the first place and be deterred from thinking up ways to create new rents. An implication, and so, is that bribery is particularly harmful from a social point of view. It underlies the incentive for officials to create rents. This is socially harmful in itself because information technology involves creating artificial scarcity and this creates deadweight losses. On pinnacle of that, bribery and corruption more broadly maximise the hazard of triggering costly contests related to obtaining the positions in regime that enable the bribes to exist collected.

While the consequences of the symbiotic relationship between rent creation and corruption has still to be fully explored in the rent-seeking literature in general, the literature on contest blueprint, initiated by Gradstein and Konrad (1999) and explored in Mealem and Nitzan (2015) amongst others, provides the foundation for a bridge between the two literatures. It studies how a contest might exist designed if the "hire-seeking endeavour" is beneficial to the contest designer who so has an involvement in maximising "effort". This incentive is particularly potent if the "effort" is a bribe transfer to the contest designer. A promising research program would be to explore more deeply the interplay between corruption, rent creation and contest design.

The empirics of corruption and rent seeking

The past 30 years accept seen a massive empirical research effort aimed at understanding the causes and consequences of (pure) corruption (meet, eastward.g., Paldam 2002; Lambsdorff 2005; Svensson 2005; Treisman 2007; Aidt 2011a). This research agenda has been fuelled past cross land information on corruption perceptions and more than recently by private or firm level survey data on experienced abuse. These types of data accept attracted a fair corporeality of critique and rightly so. ^{Footnote 7} Yet, the empirical corruption literature conspicuously points to substantial economic costs of corruption. Mauro (1995), for example, finds a small negative growth consequence and a big negative effect of corruption on investment. Subsequent research has shown that the growth event interacts with the underlying quality of institutions (Aidt et al. 2008; Méndez and Sepúlveda 2006; Méon and Weill 2010) and that corruption has a detrimental bear on on sustainable development (Aidt 2011b). Other studies have shown that corruption increases inequality (Gupta et al. 2002) and distorts fiscal and budgetary policy and the composition of government spending (eastward.g., Mauro 1998; Hessami 2014; Dimakou 2015). Expenditure tracking studies undertaken in many countries have demonstrated how vast amounts of public resources intended for schools and other public spending programmes simply disappear and never reach the intended beneficiaries (Reinikka and Svensson 2004).

Unlike the study of corruption, empirical research on rent seeking tin hardly be said to be booming. ^{Footnote 8} The existing research efforts have partly been guided by the invertability hypothesis and partly past attempts to mensurate rent seeking costs directly. Krueger (1974), Posner (1975) and Cowling and Mueller (1978) pioneered the indirect method based on the invertability hypothesis. Krueger (1974) estimated that the welfare loss from merchandise intervention in Republic of india and Turkey in the 1960s was between 7 and 15 % of GNP. Posner (1975) estimated the rent seeking cost associated with monopoly regulation in the USA to be between v and 32 % of industry sales. Cowling and Mueller (1978) plant that the total welfare cost of monopoly in the US and the U.k., respectively, was 13 and 7 % of gross corporate product. These studies and others like them presume full hire dissipation. The theoretical literature on hire seeking contests shows that this assumption is just valid in special cases and that the degree of dissipation depends on the contest function, on adventure preferences, on the nature of the prize being sought, and on many other features. Employing the full dissipation supposition is, therefore, likely to inflate the cost estimates. Lopez and Pagoulatos (1994) is a rare example of a study that estimates the degree of rent dissipation. They detect, in an application to United states trade policy, that 67 % of the value of the available hire is dissipated and estimate the total social loss of trade barriers in the United states to be 12.5 % of the value of domestic consumption. Hazlett and Michaels (1993) also approximate dissipation ratios. They explore a natural experience induced by a cellular telephone licence lottery in the 1980s in the Us and find that the ratio was 31.2 % on boilerplate.

An alternative approach is to estimate the social cost of rent seeking simply by adding observable expenditures on hire seeking related activities up. A typical finding is that the actual coin spent on lobbying (in the USA) is depression relative to the value of the rents at stake—an observation Tullock (1988) himself made when he rhetorically asked why the full amount of resources going into politics appear to exist small relative to the value of the prizes that can potentially be won. ^{Footnote 9} Others take gone further than counting lobbying expenses and added more expenditures to the hire seeking nib (e.m., expenditures on advertising, on crime prevention, or on property rights disputes) or tried to estimate hire seeking costs from "excess" presence of certain types of economic activities in capital letter cities (east.thou., sit-down restaurants). The estimates emerging from this type of research vary a lot in size, from 0.two to 23.7 % of Gross domestic product (Del Rosal 2011, Table ii). The fundamental problem with this approach clearly is that it requires an upwards-front judgement almost what constitutes hire seeking costs, and doing that objectively is hard, if not impossible.

The empirical hire-seeking literature suggests that rent dissipation is incomplete, and that the total rent seeking toll, therefore, could exist a lot smaller than the value of the rents. In dissimilarity, the empirical abuse literature points to substantial welfare costs of corruption and strongly suggests that corruption is a major obstacle to economic development. Of course, ane could take the view that abuse costs in exercise are correlated with rent seeking costs. However, doing so would diverge attention away from the very important task of quantifying the true cost of rent seeking. One way out of this conundrum is to base of operations empirical research on rent seeking more firmly on rent seeking theory and to build structural models that can exist matched to appreciable data on policy outcomes, campaign contributions, employment in the lobbying industry, etc. and in that style assistance us back out the true cost of public policy.

Conclusion

It is surprising that the abuse and rent-seeking literatures have non crisscrossed more than than information technology appears to have been the case. After all, they are both concerned with what I take called influence-seeking activities and in that location is clearly scope for fruitful cross fertilization. The corruption literature, both the branch that focuses on principal-amanuensis relationships within authorities and the co-operative that focusses on leviathan-type governments, has largely ignored the "missiles seek heat hypothesis" of rent seeking, i.due east., the notion that the presence of contestable rents elicits socially costly activities aimed at winning the rents. The consequences of this are two-fold. Get-go, the literature underestimates the value of corruption-command policies. The overriding objective of the law and economics and organisational economics literature on abuse is precisely to devise and evaluate such policies. A fruitful research project would be integrate the notion of contestable rents and the associated rent-seeking cost into the main-agent models of abuse and to reconsider existing results almost socially optimal levels of corruption. Second, the literature underestimates the social cost of corruption. Insofar as abuse is conceptualized equally a costless transfer of income from 1 political party to some other, it may announced that abuse is a social problem but because it leads to policy distortions and because it leads to inequitable and unfair allocations of public resources and funds. The rent-seeking literature would insist adding Tullock rectangles on the debit side. Nosotros just need to quantify them.

Notes

1. The rent-seeking literature has been surveyed by Nitzan (1994), Tollison (1997), Congleton et al. (2008), Hillman (2013), and Long (2013 [2015]). The papers in Congleton and Hillman (2015) summarize the unlike dimensions of the rent-seeking literature.

2. See, e.g., Hillman and Samet (1987) on all-pay auctions, Ursprung (1990) on rents as public goods, and Aidt and Hillman (2008) on rents that suffer over fourth dimension and may require re-battling.

3. Williams (2000) contains a collection of social science articles that dwell more deeply into the definitional bug.

4. Aidt (2003) lists ii boosted categories, called efficient corruption and self-reinforcing corruption. For the purpose of evaluating the influence of the rent-seeking literature on the corruption literature, it is, however, sufficient to zoom in on the two main categories listed in the text. For other classifications, see Tanzi (1998), Rose-Ackerman (1999) or Jain (2001).

5. Krueger (1974, pp. 292–293) makes a similar indicate.

6. Hillman and Ursprung (2000) depict nested contests in which outsiders compete to be insiders who compete directly for rents. Political culture determines the openness of the contests to outsiders.

7. Come across the disquisitional discussion in Kaufmann et al. (2006).

8. Del Rosal (2011) offers a critical survey of the empirical hire-seeking literature.

9. Mixon (2002), for case, finds that interest group contributions related to obtaining social security funds in the USA amount to only 0.2 % of the value of the potential rents. Goldberg and Maggi (1999) estimate the weight given to social welfare relative to special interest groups in the setting of U.s. merchandise policy. Their results suggest that the influence of special interests is very small-scale, which, again, suggests that the welfare price of rent seeking is of limited importance. Hillman and Ursprung (2016) talk over reasons why there announced to be less rent seeking and less hire dissipation than might be expected.

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1. Faculty of Economic science, University of Cambridge, Sidgwick Avenue, Cambridge, CB3 9DD, UK

   Toke S. Aidt

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Correspondence to Toke S. Aidt.

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I would like to thank Roger Congleton, Arye Hillman and the participants in the Gordon Tullock Memorial Conference at George Bricklayer Academy, October 2015, for helpful comments and suggestions.

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Aidt, T.S. Rent seeking and the economic science of corruption. Const Polit Econ 27, 142–157 (2016). https://doi.org/x.1007/s10602-016-9215-nine

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• Published: 16 Apr 2016

• Issue Date: June 2016

• DOI : https://doi.org/10.1007/s10602-016-9215-9

Keywords

• Rent seeking
• Corruption
• Bribes

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• D72

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